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Environmental pollution as engine of industrialization

Angelo Antoci, Marcello Galeotti () and Serena Sordi

Department of Economics University of Siena from Department of Economics, University of Siena

Abstract: This paper analyzes the dynamics of a small open economy characterized by two sectors (a farming sector and an industrial sector), heterogeneous agents (workers and entrepreneurs) and free inter-sectoral labor mobility. Labor productivity in the farming sector is negatively affected by environmental pollution generated by both sectors. Labor productivity in the industrial sector is positively affected by physical capital accumulated by entrepreneurs. We show that, as in the seminal contribution by Matsuyama (1992), low productivity of labor in the farming sector can be an engine of the industrialization process. However, in contrast with Matsuyama’s results, our analysis shows that the accumulation of pollution may fuel a self-enforcing process such that the expansion of the industrial sector generates a decrease in workers’ revenues.

Keywords: Two-sector model; structural change; negative externalities; pollution; self-protection behavior (search for similar items in EconPapers)
JEL-codes: B41 C61 D62 E12 E32 (search for similar items in EconPapers)
Date: 2016-01
New Economics Papers: this item is included in nep-ene and nep-env
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